But in bringing Greece to the brink, and demonstrating that its creditors were willing to see it collapse if it didn’t buckle to their demands, they did, arguably, succeed in showing up the eurozone as a deflationary straightjacket dominated by creditors. And they did this with all of the world watching. “One must know who the enemy is, in order to fight the enemy,” Alex Andreou, a Greek blogger who is sympathetic to Tsipras, wrote last week. “Syriza has achieved that. Now, it is over to you, Spain. Take what we’ve learned and apply it wisely.”
Africa as a Teaching Tool on Austerity and Structural Change
As with Africa a few decades ago, Greece’s creditors continue to reject a long-term solution, and seem intent on humiliation, teaching a wayward country a lesson.
The rhetoric of those involved is shocking. A few weeks back, the head of the IMF, Christine Lagarde, called for dialogue with adults in the room.
African negotiators will recall how they were humiliated and demeaned by the international institutions who rejected pleas for a more balanced approach. They will have much sympathy with the Greeks today.
.. The document is much more Keynes than Friedman, and focuses on long-term sustainable development, not short, sharp shock treatment according to ideological disciplining and subjugation.
How much did Germany pay in total, as reparation for WWI, in the last 92 years?
20.6 billion marks, which was about 40% of what the Allies had originally expected them to pay.
To put that number into context, the German government had borrowed somewhere between 110 and 150 billion marks between 1914 and 1918 to finance its war effort. They had planned to impose a massive war indemnity on Britain and France after victory in order to recover that money. Instead, they found that they were the ones expected to pay reparations, while still owing their creditors the 12-figure sum they’d just borrowed. It was this, rather than reparations alone, that led to Germany’s financial difficulties in the early 1920s.
The loser being forced to hand over money to the winner was a well-established custom of war. In 1871, Germany had demanded 5 billion francs from a defeated France, as well as annexing the provinces of Alsace-Lorraine.
.. The French were not only interested in compensation; they also hoped that laying a heavy, long-term indemnity payment on Germany would make it impossible for Germany to raise a new army and come back for revenge in a few years’ time.
.. Germany was obliged to pay 50 billion marks, at a rate (agreed in 1923) of 2.5 billion per year. However, rather than raise taxes to cover the payments, they borrowed the money, mostly from the United States.
In short, during the 1920s a financial merry-go-round was in operation. US bankers lent money to Germany. The German government used that money to pay reparations to Britain and France. The British and French used that money to repay their war loans to the US bankers. The US banks made huge profits, and lent even more money to Germany. Everything was going well, until the bubble burst.
..However, these payments were not reparations; they didn’t go to the victims of the war. They went to the banks which had lent money to Weimar Germany in the 1920s.
Greece’s Debt Burden: The Truth Finally Emerges
As long ago as 2010, when Greece was first bailed out, many knowledgeable observers, including some members of the I.M.F.’s board of directors, worried that Greece would never be able to pay back all of its debts—its total debt burden is about a hundred and seventy five per cent of the country’s G.D.P.—and advocated imposing a haircut on its creditors. Rather than doing this, the European Union, the European Central Bank, and the I.M.F. loaned the Greek government money to pay its creditors, which were mostly European banks, at a hundred cents on the dollar. In the now-famous words of Karl Otto Pöhl, a former head of the Bundesbank, the bailout “was about protecting German banks, but especially the French banks, from debt write-offs.”
.. But they were concerned that writing off some of Greece’s debts would set a precedent for other heavily indebted countries, such as Ireland, Italy, and Portugal. Rather than going down that route, they stuck to the fiction that Greece, if it embraced austerity and structural reform, would eventually be able to pay down all of its loans—a strategy widely known as “extend and pretend.”
.. Greece isn’t going to cut, or reform, or grow it’s way to debt sustainability. Either it will default on virtually all of its loans and adopt a new currency, or it will need debt forgiveness of the sort that Germany enjoyed after the Second World War, when more than half of its loans